Fed's Meyer Disputes Consensus Economic Forecast

By John S. McClenahen Some CEOs -- and more than a few economists -- now figure that the U.S. will escape a recession this year, post better growth in the second half than during the first six months, and return to something between 3.5% and 4% growth in GDP next year. It's dubbed the consensus forecast. "I see some downside risks to that forecast," says Laurence H. Meyer, a member of the Federal Reserve System's Board of Governors. "There are no signs yet that the economy is strengthening relative to its first-quarter performance, and growth is likely to remain sluggish into the third quarter," states Meyer. "In addition, it is unlikely we will see a repeat of the exceptional performance from 1996 through mid-2000 on the other side of the slowdown." Indeed, Meyer believes that the U.S. is in a so-called growth recession, a period during which the economy grows but not fast enough to prevent the unemployment rate from rising. Meanwhile, the next scheduled meeting of the Federal Open Market Committee (FOMC), the Fed's interest-rate setting unit, is June 26 and 27. At Merrill Lynch & Co., New York, expectations are that Chairman Alan Greenspan and his FOMC colleagues will cut the influential federal funds rate by 25 basis points to 3.75%, "with an outside chance of a 50-basis-point move," says senior economist Gerald D. Cohen.

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